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FHA Loans –Mortgage Fraud g g
Prevention & Detection
Chip Cummings, CMC
Welcome! We will begin shortly…
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 1
Before we get started…
Welcome!
• About your instructor
• About you
• About today’s program
• About the materials– FinCen, FBI, DOJ, Fannie Mae, Freddie , , , ,
Mac, HUD OIG, ACFE
Services include:
• Quality Control & Fraud Reviews
Program Sponsor
• FHA & Mortgage Fraud Training
• BSA/AML/SAR Compliance Training, Site Audits & CFPB Compliance
• Broker, Originator, Third-Party Background Checks & Site Auditsg
• Fraud Investigation & Consulting
NorthwindInternational.com(866) 977-7900
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 2
• Identify & recognize typical fraud schemes and trends
Today’s Objectives
schemes and trends
• Why are FHA Loans more susceptible?
• Analyze Borrower information & documentation for possible fraud
• Utilize online and offline resources to h l t t ti l f dhelp spot potential fraud
• What to do when you find possible fraudulent information
MORTGAGE FRAUDTRENDSTRENDS
5
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 3
Welcome!
Fraud Trend – SAR’s
Welcome!
Fraud Trends
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 4
Welcome!
Fraud Trends
Welcome!
Fraud Trends
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 5
REO FraudREO Fraud Short Sale Fraud
Short Sale Fraud
Multiple Levels of Fraud
CounterfeitCounterfeit
Straw BuyersStraw Buyers
Flipping & Flopping
Flipping & Flopping
Counterfeit Checks
Counterfeit Checks
Loan Modification
Loan Modification
Foreclosure Rescue Scams
Foreclosure Rescue Scams
Origination Schemes
Origination Schemes
Identity Fraud Schemes
Identity Fraud Schemes
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 6
What is your perception of the level of industry fraud?
Level of Industry Fraud
level of industry fraud?
• High
• Medium
• Low
Have you personally experienced
Personal Experience
fraud?
• Yes
• No
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 7
Have Consumer Financial Protection Bureau (CFPB)/RESPA changes to HUD
Has New Regulation Helped?
Bureau (CFPB)/RESPA changes to HUD and GFE helped mitigate fraud?
• Yes
• No
• Unsure• Unsure
• Have no knowledge of these regulations
• Collateral Fraud• Flipping
Ch i
Types of Mortgage Fraud
• Churning• Straw Buyer• Incentive Fraud• Real Estate Investment Fraud• SS Fraud• Check Kiting• Account Takeover• True Name Fraud/Identity Fraud• Occupancy Fraud
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 8
• Motive is to revolve equity, falsely inflate property values or issue loans
Fraud For Profit
inflate property values, or issue loans on fictitious properties.
• 80% of reported cases involve collusion by industry insiders.
• Committed by originators, processors, brokers, real estate agents, appraisers, settlement agents, attorneys.
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 9
• Goal is to acquire and maintain ownership of property under false
Fraud For Property
ownership of property under false pretenses.
• Illegal actions solely by the borrower.
• Commons schemes include asset fraud, occupancy fraud, employment fraud, income fraud, debt elimination fraud, identity theft and straw buyers.
• Access or control of the property
Profile of a “Property” Fraudster
• Personal or family use
• Ratio Manipulation
• Credit Manipulation
• Fraudulent income and/or liquid asset documentationdocumentation
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 10
EMERGING & TYPICAL FRAUDTYPICAL FRAUD SCHEMES
20
• Origination Fraud Schemes
– FHA Origination Fraud
Internal Fraud
FHA Origination Fraud
• Down-payments; Gift Funds; Occupancy
• Credit misrepresentation and manipulation
• Debt ratio manipulation
• Misrepresentation of borrower’s equity contribution
• Servicing Frauds
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 11
• Credit standards are changing!
Internal Fraud
– Dodd-Frank defines a Qualified Residential Mortgages (QRMs) to be exempt from risk retention requirements.
– QRM defined as low risk loans but characteristics are evolving.
• Credit manipulationp– FICO Scores
– Liabilities
Borrower or Third-Party Fraud
External Fraud
• Real Estate Agents
• Credit Manipulation– Piggybacking
– Credit For Sale
• Identity Fraud
• Employment & Income Misrepresentation
• Debt Misrepresentation; Occupancy Fraud
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 12
• Purchase as a Refinance TransactionHigher LTV’s Less Scrutiny
Purchase Schemes
– Higher LTV’s, Less Scrutiny
• Concurrent Closings– “Flash Funding”
• Short Sale Flops
• Flipping
• FHA & Occupancy Fraud
• MLS Manipulation
Disguise a Purchase as a Refinance
Purchase Schemes
Mortgage Fraud - Detection & Prevention
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MBA - June 24, 2013
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 14
• Occupancy Fraud
F i dl Sh t
Refinance Schemes
• Friendly Short Sale Flops
• Phantom Borrowers
• Valuation & C diti F dCondition Fraud
• Eligibility Misrepresentation
Short Sale Fraud
Misrepresentation
• Short Sale & Stay Schemes
• Short Sale Flopping
• Watch for Short Sale INTO FHA L !INTO FHA Loans!
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 15
Short Sale Fraud Ads
Short Sale Fraud
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 16
PREVENTION, DETECTION & INVESTIGATION
32
Borrower Identification & Analysis
Do You
Really
KNOW
Your Borrower?
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 17
Acceptable Identification
Source: US C.I.S. - Security Directive 1542-04-08C
EVERYTHING
Loan Application Analysis
EVERYTHINGRevolves Around the 1003!
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 18
• The application is unsigned or undated
Si t dit d t
Typical 1003 “Red Flags”
• Signatures on credit documents are illegible and no supporting identification exists
• Borrower has high income with little or no personal property
B ’ i t i t t ith• Borrower’s age is not consistent with the number of years of employment
• Borrower has an unreasonable accumulation of assets compared to
Typical “Red Flags”
accumulation of assets compared to income or has a large amount of unsubstantiated assets
• Borrower claims to have no debt
• Borrower owns an excessive amount of real estatereal estate
• A post office box is the only indicated address for the borrower
Mortgage Fraud - Detection & Prevention
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• The same telephone number is used for the borrower’s home and business
Typical “Red Flags”
the borrower s home and business
• Patterns or similarities are apparent from applications received from other borrowers
• Borrower does not guarantee the loan or will not sign in an individual capacitywill not sign in an individual capacity
• Business income is not consistent with business type
• Years of education is not consistent with borrower’s profession
Typical “Red Flags”
with borrower s profession
• Borrower is buying investment properties with no primary residence
• Large increase in monthly housing payment
Add t il ifi bl• Addresses are not easily verifiable or do not match other documents
Mortgage Fraud - Detection & Prevention
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Position Misrepresentation
Original 1003
Submitted 1003
Employment Period
Mortgage Fraud - Detection & Prevention
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Paystub Analysis
Mortgage Fraud - Detection & Prevention
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Signature Analysis
Signature Analysis
Mortgage Fraud - Detection & Prevention
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Signature Analysis
Signature Analysis
AA
BB
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 24
Mr. Google is your new best friend!
• Use Bing, Yahoo, Facebook, LinkedIn
Online Resources
g, , ,
• Other Social Media
• Google Maps
• Dept. of Corporations
• Licensing Agencies
• Assessor & Tax Records
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 25
• Drivers License Records
Online Resources
• Court Records
• Phone Look-ups
• Death Records
• Building Permits
• School Records, Awards, etc.
• Call employment competitors
Offline Resources
• Call other real estate agents
• Call city inspectors
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 26
THE LEGAL SIDE OF MORTGAGE FRAUDMORTGAGE FRAUD
52
• Internal SAR Filing Process
SAR’ R t Fi C
Reporting Fraud
• SAR’s Reports - FinCen
• Supervisor, Compliance, HR
• Regulatory Agencies
• Law Enforcement (FBI)
• FHA – HUD OIG Office
(800) 347-3735
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 27
• Variety of State and Federal Laws
C Fi i l P t ti B
Regulatory Compliance
• Consumer Financial Protection Bureau
• Financial Privacy Act
• Personally liable for any fraud or misrepresentation
Your Liability
misrepresentation
• Personally liable for future claims based upon file or document misrepresentations, fraudulent signature – or back-dating
• E&O Insurance & Corporate protection• E&O Insurance & Corporate protection is VOID!
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 28
Program Fraud Civil Remedies Act:• Double damages not to exceed $150 000;
Administrative Actions
• Double damages not to exceed $150,000;
• Up to $7,500 penalty for each false statement;
• Handled by HUD attorneys
False Claims Act:• Treble damages;
• Up to $11 000 Penalty for each falseUp to $11,000 Penalty for each false statement;
• Handled by DOJ Civil (parallel proceedings)
• Debarments and suspensions - usually after judicial action taken against Subject/Entity. These are government wide, i.e., no business allowed with any
Administrative Actions
g , , yfederal agency; Posted on Excluded Parties List Government Wide;
• Limited Denial of Participation (LDP); CAIVR; SAM List – Agency specific, HUD only;
• Civil Money Penalties- FHA Commissioner is authorized to initiate CMP’s against various mortgagers with varying fee limits;mortgagers with varying fee limits;
• Mortgagee Review Board- headed by the FHA Commissioner, can take following actions: letter of reprimand, probation, suspension and removal from the mortgage insurance programs, etc.
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 29
• State Regulator – sanctions, penalties, and may be referred for prosecution
Administrative Actions
• NMLS – Personal record noted with any sanctions or actions
• CFPB – Section 1017: Civil Penalties
• Find another career…
• 18 USC 1010, False statements to HUD (Felony) (2 years)
Federal Mortgage Statutes
• 18 USC 1012, False statements to HUD (Misdemeanor) (less than one year)
• 18 USC 1341 (Mail Fraud) 20 -30 years depending if the act impacts a financial institution; can be intra-state
• 18 USC 1343 (Wire Fraud) same as above 8 USC 3 3 ( e aud) sa e as abo e(must be interstate or international)
• 18 USC 1344 (Bank Fraud) 30 years
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 30
• 18 USC 1028 (Fraud and related activity
Non-Traditional Fraud Statutes
• 18 USC 1028 (Fraud and related activity in connection with I. D. documents)
• 42 USC 408 (Misuse of SSN)
Mortgage Fraud - Detection & Prevention
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Special Free Gift….
• State-by-State ID Guide– 53-page Guide
– Pictures of valid ID’s and data verification
• MUST complete survey at end of presentation!
• Emailed to you – 24-48 h
NorthwindInternational.com(866) 977-7900
hours
Program Sponsor
Services include:
• Quality Control & Fraud Solutions
• FHA & Mortgage Fraud Training
• BSA/AML/SAR Compliance Training, Site Audits & CFPB Compliance
• Broker, Originator, Third-Party Background Checks & Site Audits
NorthwindInternational.com(866) 977-7900
g
• Fraud Investigation & Consulting
Mortgage Fraud - Detection & Prevention
(c) 2013 Northwind International Corp. www.NorthwindInternational.com (866) 977-7900 32
Questions…
FHA Loans –Mortgage Fraud
Prevention &
Chip Cummings, CMC
Prevention & Detection
Thank You!